Macro Unit IV Exam

Use the following balance sheet for the ABC National Bank in answering the next questions. Assume the required reserve ratio is 20 percent. Refer to the above data. This commercial bank has excess reserves of:

$5,000

If the reserve ratio is 100 percent, the value of the monetary multiplier is:

1

Answer the question on the basis of the following consolidated balance sheet of the commercial banking system. Assume that the reserve requirement is 20 percent. All figures are in billions and each question should be answered independently of changes specified in all preceding ones. Refer to the given data. Suppose the Fed wants to increase the money supply by $1,000 billion to drive down interest rates and stimulates the economy. To accomplish this, it could lower the reserve requirement from 20 percent to:

10 percent

If actual reserves in the banking system are $50,000, excess reserves are $5,000, and checkable deposits are $225,000, then the monetary multiplier is:

5

If the reserve ratio is 15 percent and commercial bankers decide to hold additional excess reserves equal to 5 percent of any newly acquired checkable deposits, then the relevant monetary multiplier for the banking system is:

5

Which of the following statements is true about buying an old factory?

It is a financial investment but not an economic investment

According to the Taylor rule, if real GDP is 4 percent below potential GDP, the Fed should:

Lower the federal funds rate by 2 percentage points

Refer to the given diagram for the federal funds market. If the Fed wants the federal funds rate to be if1, what quantity of reserves do they need to make available to banks?

Qf1

Refer to the diagram for the federal funds market. If the Fed wants to raise the federal funds rate from if1 to if3, it should:

Sell bonds to banks and the public

Assume that the price level is flexible both upward and downward and the Fed's policy is to keep the price level from either rising or falling. If aggregate supply increases in the economy the Fed:

Will have to keep the money supply to keep the price level from falling

The fact that international specialization and trade based on comparative advantage can increase world output is demonstrated by the reality that:

a nation's trading possibilities line lies to the right of its production possibilities line

On a diagram where the interest and the quantity of money demanded are shown on the vertical and horizontal axes respectively, the transactions demand for money can be represented by:

a vertical line

The buying and selling process that leads profit-seeking investors to equalize average expected rates of return from identical assets is known as:

arbitrage

Answer the question on the basis of the following information for the Moolah Bank. Assume that the listed accounts constitute this bank's complete set of accounts. Moolah's:

assets are $1,100

Portfolio diversification eliminates all of the _______ from a portfolio

diversifiable risk

Owners of stock receive _______ from their shares; sellers of stock can receive ______ from selling their shares.

dividends; capital gains

The market for available reserve balances at the Federal Reserve is known as the:

federal funds market

Les buys a bond for $5,000. Every year that he holds the bond he we will receive interest payments of $250. The interest rate on the bond:

is 5 percent

Katie buys a house for $200,000 and rents it for $1,000 per month. Katie's annual rate of return:

is 6 percent

Generally, the prime interest rate:

moves in the same direction as the federal funds rate

Diversifiable risk refers to risk:

specific to a particular investment

An expansionary monetary policy may be frustrated if the:

Investment demand curve shifts to the left

If the exchange rate between the U.S dollar and the Japanese yen is $1= 200 yen, then the dollar price of yen is:

$0.005

Myrna borrows $500 at an annually compounded interest rate of 8 percent that she will repay at the end of 10 years. How much will be required to pay off the loan at the end of 10 years?

$1,079.46

Calculate the present value of an asset worth $2,000 four years from now if the interest rate is 6 percent.

$1,584.19

Answer the question on the basis of the following table for a commercial bank or thrift: Refer to row 4 in the table. The number appropriate for space Z is:

$10,000

Answer the question on the basis of the following information about a banking system: new currency deposited in the system = $40 billion; legal reserve ratio = 0.20; excess reserves prior to the currency deposit = $0. Refer to the information. With the $40 billion deposit, the banking system will be able to expand the money supply through loans by:

$160 billion

Suppose the reserve requirement is 20 percent. If a bank has checkable deposits of $4 million and actual reserves of $1 million, it can safely lend out:

$200,000

$200 invested at an annual rate of 5 percent will be worth how much at the end of one year?

$210

If a U.S. importer can purchase 10,000 British pounds for $20,000, the rate of exchange is:

$2=1 British pound in the United States

Answer the question on the basis of the following information about a banking system: new currency deposited in the system = $40 billion; legal reserve ratio = 0.20; excess reserves prior to the currency deposit = $0. Refer to the information. The $40 billion deposit of currency into checking accounts will create excess reserves of:

$32 billion

Answer the question on the basis of the following table for a commercial bank or thrift: Refer to row 3 in the table. The number appropriate for space Y is:

$32,000

Answer the question on the basis of the following consolidated balance sheet of the commercial banking system. Assume that the reserve requirement is 20 percent. All figures are in billions and each question should be answered independently of changes specified in all preceding ones. Refer to the given data. If the Fed reduced the reserve requirement from 30 percent to 16 percent, excess reserves in the commercial Banking system by____ and the monetary multiplier would rise to______.

$40 billion; 6.25

Answer the question on the basis of following table: At equilibrium in the given market for money, the total amount of money demanded is:

$460

Answer the question on the basis of the information in the following table. Refer to the table. The amount of investment that will be forthcoming in this economy at equilibrium is:

$500

Answer the question on the basis of the following table for a commercial bank or thrift: Refer to the table. When the legal reserve ratio is 10 percent, the money-creating potential of this single bank is:

$6,000

Assume Company X deposits $100,000 in cash in commercial Bank A. If no excess reserves exist at the time this deposit is made and the reserve ratio is 20 percent, Bank A can increase the money supply by a maximum of:

$80,000

Answer the question on the basis of the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All figures are in billions. Refer to the data. The commercial banking system has excess reserves of:

$9 billion

Answer the question on the basis of the following information for the Moolah Bank. Refer to the information and assume that Moolah Bank is "loaned up." If it receives a $100 deposit of currency, the banking system of which Moolah is a part could expand loans by:

$90

If actual reserves in the banking system are $40,000, excess reserves are $10,000, and checkable deposits are $240,000, then the legal reserve requirement is:

12.5 percent

U.S exports of good and services (on national income account basis) are about:

14 percents of U.S GDP

Answer the question on the basis of the information in the following table. Refer to the table. The equilibrium interest rate in this economy is:

4 percent

Suppose that a bank's actual reserves are $5 million, its checkable deposits are $5 million, and its excess reserves are $3 million. The reserve requirement must be:

40 percent

Answer the question on the basis of the following table: Refer to the given table. The equilibrium interest rate is:

8 percent

Which of the following statements is correct?

A bank's liabilities plus its net worth equal its assets.

On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively, the asset demand for money can be represented by:

A downsloping line or curve from left to right

Which if the following is correct?

Actual reserves minus required reserves equal excess reserves

The federal funds rate is the interest rate that_____ charge(s) _______.

Banks; other banks

In the United States monetary policy is the responsibility of:

Board of Governors of the Federal Reserve System

If the economy were encountering a severe recession, proper monetary and fiscal policies would call for:

Buying government securities, reducing the reserve ratio, reducing the discount rate, reducing interest paid on reserves held at Fed banks, and a budgetary deficit.

Refer to the given market-for-money diagrams. The asset demand for money is shown by:

D2

Refer to the given market-for-money diagrams. The total demand for money is shown by:

D3

Refer to the diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels the levels of investment spending associated with each curve. All figures are in billions. If the money supply is MS1 and the goal of the monetary authorities is full-employment output Qf, they should:

Increase the money supply from $80 to $100

Assume that Smith deposits $600 in currency into her checking account in the XYZ Bank. Later that same day Jones negotiates a loan for $1,200 at the same bank. In what direction and by what amount has the supply of money changed?

Increased by $1,200

The transactions demand for money is most closely related to money functioning as a:

Medium of exchange

Which of the following is a difference between "quantitative easing" and ordinary open-market operations?

Open-market operations are done in order to lower interest rates; quantitative easing is merely intended to increase bank reserves

Which of the following is correct?

The asset demand for money is downsloping because the opportunity cost of holding money increases as the interest rate rises.

Which of the following will increase Commercial bank reserves?

The purchase of government bonds in the open market by the Federal Reserve Banks

Which of the following best describes the effect of the zero interest rate policy implemented in December 2008?

The effectiveness was limited by the zero lower bound problem

Differences in production efficiencies among nation in producing a particular good result from:

all of these

In a fractional reserve banking system:

banks can create money through the lending process.

Debt contracts (also called instruments) issued by government and corporations are known as:

bonds

Which of the following is a difference between stocks and bonds?

bonds make interest payments; stocks pay dividends

Answer the question on the basis of the following consolidated balance sheet of the commercial banking system. Assume that the reserve requirement is 10 percent. All figures are in billions and each question should be answered independently of changes specified in all preceding ones. Refer to the given data. Suppose the Fed wants to increase the money supply by $400 billion to drive down interest rates and stimulate the economy. Assuming that the money multiplier is operating to full effect, to accomplish the desired increase, the Fed could:

buy $40 billion of U.S securities from the banks

Banks create money when they:

buy government bonds from households

Excess reserves refer to:

difference between actual reserves and required reserves

A change in Federal Reserve monetary policy will:

cause a vertical shift of the Security Market Line.

Commercial banks create money when they:

create checkable deposits in exchange for IOUs

The reserves of a commercial bank consist of:

deposits at the Federal Reserve Bank and vault cash

Limited liability rules:

encourage stock investing by limiting shareholder risk of loss

The amount that a commercial bank can lend is determined by its:

excess reserves

Answer the question on the basis of the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All figures are in billions. Refer to the data. If the commercial banking system actually loans the maximum amount it is able to lend:

excess reserves will be reduced to zero

The U.S federal government is unlikely to default on its bond payments because:

if necessary, it can print the money needed to make payments on time

In 2012, the United States:

imported more goods than it exported.

It is costly to hold money because:

in doing so, one sacrifices interest income.

Interest paid on reserves held at the Fed:

incentivizes financial institutions to hold more reserves and reduce risky lending.

A bank has assets of $85 billion and a net worth of $10 billion must have:

liabilities of $75 billion

The greater the required reserve ratio, the:

lower is the monetary multiplier

The federal funds rate:

lower than both the prime interest rate and the discount rate

The federal funds rate is:

lower than both the prime interest rate and the discount rate.

The present value of a future amount of money will be greater the:

lower the interest rate

If country A can produce both goods X and Y more efficiently, that is, with smaller absolute amounts of resources, than can country B:

mutually advantageous specialization and trade between A and B may still be possible

The claims of the owners of a firm against the firm's assets are called:

net worth

When commercial banks use excess reserves to buy government securities from the public:

new money is created

For most financial assets investors must be compensated for:

nondiversifiable risk and time preference

The Federal Reserve Banks buy government securities from commercial banks. As a result, the checkable deposits:

of commercial banks are unchanged, but their reserves increase

Which of the following is a tool of monetary policy?

open-market operations

Which of the following actions by the Fed would cause the money supply to increase?

purchases of government bonds from banks

Arbitrage causes an equalization of the______ when assets are identical or nearly identical.

rates of return of assets

The following diagram is flexible exchange market for foreign currency: Refer to the diagram. Other things equal, a leftward shift of the demand curve would:

reduce the equilibrium quantity of euros

Answer the question on the basis of the following table for a commercial bank or thrift: Refer to the table. If the legal reserve ratio falls from 25 percent to 10 percent, excess reserves of this single bank will:

rise by $6,000 and the money multiplier will increase from 4 to 10

The equilibrium rate of interest in the market for money is determined by the intersection of the:

supply-of-money and the total-demand-for-money curve

(Last Word) The greater the leverage in the financial system, all else equal:

the greater the instability of the financial system

The steeper the Security Market Line:

the more investors dislike risk

The asset demand for money is downsloping because:

the opportunity cost of holding money increases as the interest rate rises

When the receipts given by goldsmiths to depositors were used to make purchases:

the receipts became in effect paper money

The multiple by which the commercial banking system can increase the supply of money on the basis of each dollar of excess reserves is equal to:

the reciprocal of the required reserve ratio

Which of the following tools of monetary policy has not been used since 1992?

the reserve ratio

(Last Word) The term "leverage" refers to:

using borrowed money in an attempt to increase profits

asset demand for money

varies inversely with the rate of interest